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L&T: What the future holds...
Sep 5, 2008

FY08 was a significant year for L&T, wherein the company surpassed all its previous records in terms of revenues, order inflows, order backlog and profits. The company came out with its FY08 annual report recently. In this article we highlight the key excerpts of the same. Views on domestic industry
The capital goods and infrastructure sectors have been growing at a fast pace in the last five years. These industries had a higher share of 30% in the annual average growth achieved in GDP. The capital goods sector has been maintaining strong traction year on year, surpassing the growth levels set over the high base each year.

Opportunities going forward
While the US and European regions are witnessing a slowdown in their respective economies, countries from the Middle East region have been taking advantage of the soaring crude prices and as such have ramped up their infrastructure investments, especially in their oil producing facilities and general infrastructure. As India’s international trade with this region has risen over the years consistently, it is expected to strengthen further with the joint efforts of India and oil producing nations. As L&T has a strong presence in this region, it is likely to give the company added advantage going forward.

In the domestic space, the management has mentioned that the high amount of foreign direct investments, which increased to US$ 25 bn in FY08 are expected to scale up further. This will not only benefit the companies from the infrastructure and capital goods sectors, but will also help in opening up of the same.

Further, the opportunities in the infrastructure space have more than doubled during the eleventh five-year plan. With large investment proposed in key segments such as power, roads, airports and ports, the opportunities for engineering and construction companies like L&T remain buoyant.

  • Also read – Opportunities in Infrastructure

    The challenges going forward
    For developing a strong economy, the support of strong infrastructure is a prerequisite for sustaining the growth momentum and improving an all-round quality of life. However, for attaining the same, the company has identified certain key parameters that need to be worked upon. These will range from physical process of land acquisition for rapid industrialisation to further complex challenges of project financing and environment management.

    What to expect
    At the current price of Rs 2627, the stock is trading at 17.2 times our FY11 estimated earnings. The management believes that with the government’s commitment on developing a strong infrastructure base, the sector’s outlook remains encouraging. As such, the country has witnessed a rapid increase in private investments in infrastructure as well over the last five years. Targeting an average GDP growth of 9%, the eleventh five-year plan (2007-2012) has set a benchmark for the investment scenario in the Indian economy. The estimated investment in infrastructure is estimated to be at levels of US$ 500 bn by 2012, an increase of nearly 130% over the previous five-year plan.

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